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Central Bank of the Republic of Turkey
1. Overview
Volatilities in global financial markets continued in the third quarter of 2015. Uncertainties in
global monetary policies and concerns over global growth have been in the forefront in this quarter.
Accordingly, long-term rates remained highly volatile in advanced economies and uncertainty
indicators displayed an increase (Chart 1.1). In the late third quarter and early fourth quarter, volatilities
in financial markets declined slightly on the back of the growing perception about the postponement
of the Fed’s policy rate hike, and also owing to the ECB’s statement for a continued easing in monetary
policy as well as the accommodative steps taken by the People’s Bank of China.
Financial asset prices in emerging economies were also affected notably by this volatility. In the
third quarter, risk premium indicators of emerging economies deteriorated; long-term rates increased;
and domestic currencies depreciated. Moreover, portfolio flows towards these countries exhibited the
weakest outlook and exchange rate volatilities hit the peak of recent years (Chart 1.2). In the early
fourth quarter, financial asset prices saw partial improvement in emerging economies amid the
alleviated volatility in global financial markets. Risk premium indicators and long-term rates registered a
decline and depreciation in domestic currencies was partially reversed. The global economic activity,
which has started to lose pace in 2014, slowed down further through the second quarter of 2015 due to
the deceleration in China and some other emerging economies. Meanwhile, the weak course of the
global economic activity led to a decline in commodity prices in the third quarter.
Chart 1.1.
Chart 1.2.
VIX and US Interest Rate Volatility
Portfolio Flows to Emerging Economies (4-Week Moving
Average, Billion USD) and JPMVXYEM Volatility Index
(Basis Points)
(Percent)
Equity Funds
VIX
45
130
MOVE Index (right axis)
40
110
8
Bond Funds
13
6
JPMVXYEM (right axis)
12
4
11
2
10
0
9
-2
8
-4
7
-6
6
-8
5
-10
4
Source: Bloomberg.
1015
0715
0415
0115
1014
0714
0414
1015
0715
0415
0115
1014
0714
0414
0114
1013
0713
0413
0113
1012
30
0712
10
0114
15
1013
50
0713
20
0413
70
0113
25
1012
90
30
0712
35
Source: EPFR, Bloomberg.
Volatility in global markets had repercussions on the Turkish economy as well and financial
indicators went through fluctuations amid domestic uncertainties. In the third quarter, similar to other
emerging economies, risk premium indicators and long-term rates in Turkey also increased and the
Turkish lira depreciated. However, more recently, all financial asset prices have registered an
improvement. In this period, in addition to implementing a tight monetary policy stance in
consideration of the inflation outlook, the CBRT also took steps to support financial stability and stabilize
the foreign exchange liquidity along the lines of the road map announced in August.
Inflation Report 2015-IV
1
Central Bank of the Republic of Turkey
In the second quarter of 2015, economic activity recorded an increase owing to domestic
demand. Third-quarter indicators signal a mild course in economic activity, while growth composition is
expected to turn in favor of net exports in the second half of the year. Domestic and external
uncertainties pose a downward risk to the economy, whereas the rising demand from the EU countries
supports our exports. Accordingly, it is assessed that domestic demand will remain moderate in the
upcoming period, while external demand will recover and the re-balancing in growth composition will
continue.
In the third quarter of 2015, inflation rose amid developments in food prices and the exchange
rate. Due to the cumulative depreciation in the Turkish lira, annual core goods inflation surged in this
period and the core inflation remained elevated. In addition to the changes in exchange rate and
food prices, wage developments and medium-term inflation expectations will also be effective on the
course of the inflation outlook in the upcoming period. Accordingly, inflation is expected to hover
around current levels for a while due to the exchange rate effects, and then trend downwards.
Conditional on the fiscal policy regarding revenues and expenditures, inflation is projected to reach
the 5-percent target in the medium term.
1.1. Monetary Policy and Financial Conditions
The CBRT released a road map on 18 August 2015 concerning the policies to be implemented
before and during the normalization of global monetary policies. Accordingly, it was announced that
the width of the interest rate corridor will be narrowed and the corridor will be made more symmetric
around the one-week repo rate. During the simplification process, adjustments will be made in the
funding composition to preserve the required degree of tightness in the monetary policy. Moreover,
the road map also addressed policies to be implemented before and during the normalization
regarding Turkish lira liquidity, foreign exchange liquidity and financial stability. Thus, with respect to the
Turkish lira liquidity, quotation on the interest rate on borrowing facilities provided for primary dealers via
repo transactions was terminated and collateral conditions for Turkish lira transactions were simplified
as of 23 September 2015. In addition, it was reminded that foreign exchange deposits can be used as
collaterals against Turkish lira transactions, and new simplified rules were announced regarding the use
of this facility. The aim of these arrangements that were put into effect on 28 September 2015 is to
enhance the efficiency of banks’ liquidity management.
Chart 1.1.1.
Chart 1.1.2.
CBRT Funding
CBRT Rates and BIST Interbank O/N Repo Rates
(2-Week Moving Average, Billion TL)
(Percent)
2
1015
2
0815
4
0615
6
4
0415
6
0215
8
1214
8
1014
10
0814
12
10
0614
12
0414
14
0214
1015
0815
0615
0415
0215
1214
1014
0814
0614
0414
0214
1213
1013
90
80
70
60
50
40
30
20
10
0
-10
1213
100
90
80
70
60
50
40
30
20
10
0
-10
Interest Rate Corridor
CBRT Average Funding Rate (5-day moving average)
BIST O/N Repo Rates (5-day moving average)
1-Week Repo Rate
14
1013
Marginal Funding
O/N Funding
One-Week Repo
1-Month Repo
Reverse Repo at the BIST and Interbank Money Market
100
Net Open Market Operations
Source: BIST, CBRT.
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Inflation Report 2015-IV
Central Bank of the Republic of Turkey
In the third quarter of 2015, the CBRT maintained its tight monetary policy stance in order to
contain the adverse effects of exchange rate movements and the volatility in energy and food prices
on inflation and inflation expectations. Accordingly, the average funding rate was increased gradually
in line with the tight liquidity policy. The CBRT continued to provide funding mainly through one-week
repo auctions, while the share of marginal funding was gradually increased (Chart 1.1.1).
Consequently, the average funding rate, which was 8.5 percent in the July Inflation Report, has
recently hovered around 8.75 percent. Moreover, interbank overnight repo rates were formed at the
upper band of the interest rate corridor in the third quarter, as in previous quarters of 2015 (Chart 1.1.2).
In the period ahead, monetary policy decisions will be conditional on the inflation outlook. Inflation
expectations, the pricing behavior and other factors that affect inflation will be monitored closely and
the tight monetary policy stance will be maintained as deemed necessary.
The spread between the 5-year market rates and the BIST overnight rates, which was negative
across the year, neared zero in October 2015 (Chart 1.1.3). The yield curve remained almost flat in this
quarter as well (Chart 1.1.4).
Chart 1.1.3.
Chart 1.1.4.
Money Market Rates (Percent)
Yield Curve (Percent)
1-26 October 2015
2
0
0
-2
-2
-4
-4
10.5
10.0
10.0
9.5
9.5
9.00
2
10.5
10.00
4
8.00
6
4
11.0
7.00
6
11.0
5.00
8
4.00
10
8
3.00
10
11.5
2.00
12
0711
0911
1111
0112
0312
0512
0712
0912
1112
0113
0313
0513
0713
0913
1113
0114
0314
0514
0714
0914
1114
0115
0315
0515
0715
0915
12
11.5
1.00
14
0.50
14
29 July 2015-26 October 2015
0.25
5-Year Market Rates-BIST O/N Rates
BIST O/N Rates (5-day moving average)
5-Year Market Rates
Maturity (Year)
Source: Bloomberg, CBRT.
Source: Bloomberg.
Measures were taken to enhance financial stability in line with the road map released in August.
In addition to the changes in required reserves made in the first quarter of 2015, which aimed to foster
maturity extension in foreign exchange non-core liabilities of banks and financing companies, required
reserve ratios were changed for new foreign exchange non-core liabilities to originate after 28 August
2015 with a view to provide incentive for maturities longer than three years. This change has supported
the maturity extension of non-core foreign exchange liabilities, which has been observed since
November 2014. The steady upward trend in maturities longer than three years is deemed particularly
important for financial stability (Chart 1.1.5). Furthermore, the CBRT stated on 29 August 2015 that the
remuneration rate of Turkish lira required reserves would be increased by 50 basis points each in
September, October and December. This arrangement will reduce the intermediation costs of the
banking sector and offer an additional support to core liabilities. In fact, the loans-to-deposits ratio,
which was on an upward trend, has stabilized since the first arrangement in November 2014
(Chart 1.1.6).
Inflation Report 2015-IV
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Central Bank of the Republic of Turkey
Chart 1.1.5.
Chart 1.1.6.
Maturity of Non-Deposit Liabilities
Loans/Deposits
(Percent)
(Percent)
Anouncement of Required Reserve
Measures in Financial Stability Report
60
55
60
130
55
120
130
Anouncement of Required
Reserve Measures in Financial
Stability Report
120
<1-year
50
50
45
45
100
100
90
90
80
80
70
70
0915
0115
0515
0914
0114
0514
0913
25
0113
0513
25
0912
30
0112
0512
30
0911
35
0114
0214
0314
0414
0514
0614
0714
0814
0914
1014
1114
1214
0115
0215
0315
0415
0515
0615
0715
0815
0915
35
0111
0511
40
0910
>3-year
110
0110
0510
40
110
Source: CBRT.
As part of the steps to be taken during the normalization of global monetary policies, the CBRT
also included some measures in the road map to enhance the flexibility of the FX liquidity
management. In this regard, transaction limits for banks at the CBRT Foreign Exchange and Banknotes
Markets were raised by around 130 percent to 50 billion USD on 1 September 2015. Consequently, the
sum of deposit limits allocated to banks and gold and foreign exchange assets held at the CBRT under
the ROM reached a level that more than meets banks’ external debt payments in the upcoming year.
Moreover, the CBRT announced that due to the increased volatility in global financial markets, as of 19
August 2015, the amount of the foreign exchange sales auction may be increased by up to 70 million
USD above the pre-announced minimum amount. Accordingly, the CBRT has maintained its stabilizing
stance regarding the foreign exchange liquidity.
Annual loan growth remains reasonable on the back of the tight monetary policy stance and
macroprudential measures. Recently, loan growth rates have decelerated further due to heightened
domestic and global uncertainties. The annual growth rate of total loans adjusted for the exchange
rate declined to 15.3 percent at the end of the third quarter. Both consumer and commercial loan
growth rates slowed down notably in this quarter. The annual growth rate of consumer loans declined
to 12.2 percent, while that of commercial loans adjusted for exchange rate fell to 17.8 percent in this
period (Chart 1.1.7). These developments on the growth and composition of loans contribute both to
the re-balancing process and financial stability. The recent course of loan growth reflected by 13-week
moving averages suggests that annualized growth rates dropped and lagged far behind past years’
averages in both consumer and commercial loans (Chart 1.1.8). An analysis of consumer loans by subitems reveals that all loan types decelerated except for automobile loans; while in the commercial
loans front, the slowdown in FX-denominated loans proved more apparent than that in TLdenominated loans. In addition to moderate growth of economic activity, hikes in consumer and
commercial loan rates in the third quarter and tightening in other financial conditions point out that
loan growth may remain low compared to historical averages in the upcoming period as well.
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Inflation Report 2015-IV
Central Bank of the Republic of Turkey
Chart 1.1.7.
Chart 1.1.8.
Annual Loan Growth
Annualized Loan Growth
(Adjusted for Exchange Rate, Annual Percent Change)
Commercial
(Adjusted for Exchange Rate, 13-Week Moving Average,
Annualized, Percent)
Commercial
Consumer
Consumer
0711
1015
0
0715
0
0115
0415
0
1014
0
0714
10
0114
0414
10
1013
10
0713
10
0113
0413
20
1012
20
0712
20
0412
20
0112
30
1011
30
1015
30
0115
0415
0715
30
1014
40
0114
0414
0714
40
1013
40
0113
0413
0713
40
1012
50
0112
0412
0712
50
1011
50
0711
50
Source: CBRT.
1.2. Macroeconomic Developments and Main Assumptions
Inflation
In the third quarter of 2015, annual consumer inflation posted a quarterly increase of around 0.75
points compared to the previous quarter and rose to 7.95 percent, remaining above projections of the
July Inflation Report (Charts 1.2.1 and 1.2.2). The food prices and exchange rate developments are the
main drivers of this rise in annual inflation. Due to the course of the unprocessed food prices, the
contribution of food prices to inflation increased again in this quarter. Moreover, annual core goods
inflation posted an upsurge owing to the cumulative depreciation in the Turkish lira. Meanwhile,
exchange rate developments had a limited effect on energy prices due to the decline in oil prices.
Chart 1.2.1.
Chart 1.2.2.
Inflation Forecasts and Realizations*
Inflation Forecasts and Realizations Excluding
Unprocessed Food and Tobacco* (Percent)
(Percent)
July 2015 Forecasts
July 2015 Forecasts
Actual Inflation
Actual Inflation
6
6
5
5
5
5
0915
6
0815
6
0715
7
0615
7
0515
7
0415
7
0315
8
0915
8
0815
8
0715
8
0615
9
0515
9
0415
9
0315
9
* Shaded area denotes the 70 percent confidence interval for the forecast.
Source: TURKSTAT, CBRT.
In the third quarter of the year, despite the decline in USD-denominated import prices, cost
pressures on inflation increased due to food prices and exchange rate developments. In this period,
the underlying trend of core inflation indicators posted a slight decline compared to the previous
quarter, yet remained elevated (Chart 1.2.3). Meanwhile, the tight monetary policy stance and the
mild course of domestic demand are considered to have limited the pass-through from exchange
rates to prices compared to similar episodes in the past. Along with the high course of food prices and
Inflation Report 2015-IV
5
Central Bank of the Republic of Turkey
its repercussions on prices of catering services, the rise in non-food cost factors led consumer inflation
excluding food and catering services to increase by around 0.5 points to 6.36 percent in this quarter
(Chart 1.2.4).
Chart 1.2.3.
Chart 1.2.4.
Core Inflation Indicators SCA-H and SCA-I
Food and Non-Food Prices
(Seasonally Adjusted, 3-Month Moving Average, Annualized,
Percent)
Food and Catering Services
SCA-I
2
0815
4
2
0615
4
0415
6
0215
8
6
1214
0915
0615
0315
1214
0914
0614
3
0314
3
1213
5
0913
5
10
8
1014
7
12
10
0814
7
12
0614
9
0414
9
14
0214
11
1213
11
16
14
1013
13
18
CPI (excl. food and catering services)
16
0813
13
18
0613
15
0413
15
0213
SCA-H
(Annual Percent Change)
Source: TURKSTAT, CBRT.
In addition to the exchange rates, which are likely to be driven by domestic and global
uncertainties, the course of food inflation, medium-term inflation expectations and repercussions of
wage developments on inflation will be critical for the inflation outlook over the upcoming period. The
establishment of the Committee on Monitoring and Evaluating Food and Agricultural Product Markets
has been an important structural reform regarding inflation. The measures to be adopted in
coordination with this committee may provide structural and cyclical support to bring food inflation
down. Against this background, inflation is expected to hover around current levels for some time due
to exchange rate effects and start slowing down afterwards. Conditional on the fiscal policy regarding
revenues and expenditures, inflation is projected to reach the 5-percent target in the medium term.
Supply and Demand
According to the GDP data of the second quarter of 2015, economic activity proved more
robust compared to the outlook presented in the July Inflation Report, and the GDP rose by 1.3 and 3.8
percent on a quarterly and annual basis, respectively (Chart 1.2.5). An analysis of seasonally adjusted
national income components on the production side indicates that the industrial value added
provided the highest contribution to the GDP, with other items also contributing positively to the GDP
(Chart 1.2.6). Second-quarter seasonally adjusted data on the expenditures side reveal that final
domestic demand grew due to both consumption and investment expenditures.
In the first half of 2015, domestic demand made a higher contribution to growth than external
demand. Indicators for the third quarter hint at a moderate economic activity, while also suggesting
that the growth composition might change in favor of net exports in the second half. Sales, production
and import indicators regarding industrial production and domestic demand show that final domestic
demand will provide a modest contribution to growth. Additionally, the rising demand from EU
countries is expected to have a positive impact on Turkey’s exports in the upcoming period. Thus,
considering the likely slowdown in import demand based on domestic demand developments, the
contribution of external demand to growth is expected to increase in the second half.
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Inflation Report 2015-IV
Central Bank of the Republic of Turkey
Chart 1.2.5.
Chart 1.2.6.
GDP and Final Domestic Demand
Annual GDP Growth and Contributions from the
Production Side (Percentage Points)
GDP
Final Domestic Demand
34
34
Millions
(Seasonally Adjusted, Billion TL, 1998 Prices)
Net Taxes
Agriculture
Construction
Industry
Services
GDP
5
5
32
32
30
30
3
28
28
2
2
26
26
1
1
24
24
0
0
22
-1
22
4
1234123412341234123412341234123412
4
3
-1
1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2
2007 2008 2009 2010 2011 2012 2013 20142015
2010
2011
2012
2013
2014
2015
Source: TURKSTAT, CBRT.
Thanks to the macroprudential policy framework in effect since 2011, the GDP continues to grow
at a moderate pace while the final domestic demand has seen some recovery following the rebalancing process (Chart 1.2.7). Tightening in financial conditions due to domestic and international
developments poses a downside risk to domestic demand, but this tightening may prove temporary
with waning domestic uncertainty. Moreover, the robust post-crisis employment performance is
expected to support domestic demand via the income channel. In addition, the likely fall in the current
account deficit and the strong public finance generate room for stabilizing economic policies to
dampen the effects of possible shocks. Regarding Turkey’s trading partners; the recovery in the EU is
expected to support Turkey’s exports, while ambiguities about exports to the MENA region, Russia and
Iraq pose downside risks. Uncertainties about the effects of the Fed’s policy decisions and the slowing
Chinese economy on the global economy as well as concerns related to the sustainability of the
European recovery also point to downside risks for external demand. In sum, 2016 is expected to
witness a moderate growth in domestic demand, a recovery in external demand and a continued rebalancing in the growth composition. The current account balance is anticipated to improve further
with the support of the moderate domestic demand, slowdown in consumer loans and favorable
developments in the terms of trade (Chart 1.2.8).
Chart 1.2.7.
Chart 1.2.8.
GDP and Final Domestic Demand Growth
Current Account Balance
(8-Quarter Moving Average)
(12-Month Cumulative, Billion USD)
Current Account Balance
Current Account Balance (excl. gold)
Current Account Balance (excl. energy and gold)
30
30
0.0
-0.5
-1.0
-1.0
-1.5
-1.5
1 3 1 3 1 3 1 3 1 3 1 3 1 3 1 3 1 3 1 3 1 3 1 3 1 3 1 3 1 3 12
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15
Source: TURKSTAT.
Inflation Report 2015-IV
-30
-50
-50
-70
-70
-90
-90
0815
0.0
-0.5
-30
0215
0.5
0814
1.0
0.5
-10
0214
1.0
-10
0813
1.5
10
0213
1.5
10
0812
2.0
0212
2.5
2.0
0811
3.0
2.5
0211
3.5
3.0
0810
3.5
0210
Final Domestic Demand
0809
GDP
Source: CBRT.
7
Central Bank of the Republic of Turkey
Oil, Import and Food Prices
The fall in international commodity prices, especially energy, continued into the third quarter.
Backed by the slowing economies of China and other emerging countries, this downtrend caused
import prices in Turkey to decline in USD terms. Therefore, assumptions for crude oil prices and USDdenominated import prices were revised downward (Charts 1.2.9 and 1.2.10). On an annual basis, the
average crude oil price assumption was decreased from 59 USD to 54 USD for 2015 and from 63 USD to
54 USD for 2016. Additionally, assumptions for annual percentage changes in average import prices
were revised downwards by 1.9 points for 2015 and 2016. Meanwhile, year-end projections for food
prices were left unchanged, with the food inflation assumption remaining at 8 percent for end-2015
and end-2016.
Chart 1.2.9.
Chart 1.2.10.
Revisions in Oil Prices*
Revisions in Import Prices*
(USD/bbl)
(USD, 2010=100)
July 2015
October 2015
120
120
110
110
100
100
90
90
80
80
70
70
60
60
50
50
Actual
1213
0214
0414
0614
0814
1014
1214
0215
0415
0615
0815
1015
1215
0216
0416
0616
0816
1016
1216
40
40
July 2015
115
115
110
110
105
105
100
100
95
95
90
90
Actual
85
85
1213
0214
0414
0614
0814
1014
1214
0215
0415
0615
0815
1015
1215
0216
0416
0616
0816
1016
1216
October 2015
* Shaded area denotes the forecast horizon.
Source: Bloomberg, CBRT.
Fiscal Policy and Tax Adjustments
The medium-term fiscal policy stance is based on the MTP projections covering the 2016-2018
period. Compared with the previous MTP, the new projections envisage slightly higher revenues and
expenditures as a ratio of the GDP in 2015 and a somewhat slower decline in these ratios in the
following years. Conditional on this outlook, inflation is expected to improve gradually and reach the 5percent target in the medium term.
1.3. Inflation and the Monetary Policy Outlook
Medium-term forecasts are based on the framework that the tight monetary policy stance will
be maintained until there is a significant improvement in the inflation outlook. Moreover, the annual
loan growth rate is envisioned to hover around reasonable levels, also on the back of macroprudential
measures. Accordingly, inflation is expected to be, with 70 percent probability, between 7.4 percent
and 8.4 percent (with a mid-point of 7.9 percent) at end-2015 and between 5.0 percent and 8.0
percent (with a mid-point of 6.5 percent) at end-2016. Inflation is projected to near 5 percent at end2017 and stabilize around 5 percent in the medium term (Chart 1.3.1).
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Inflation Report 2015-IV
Central Bank of the Republic of Turkey
Chart 1.3.1.
Inflation and Output Gap Forecasts
(Percent)
Forecast Range
Uncertainty Band
Year-End Inflation Target
Output Gap
12
12
10
10
Forecast
Horizon
8
8
0918
0618
0318
1217
0917
0617
-4
0317
-4
1216
-2
0916
-2
0616
0
0316
0
1215
2
0915
2
0615
4
0315
4
1214
6
0914
6
* Shaded area denotes the 70 percent confidence interval for the forecast.
Source: CBRT.
The rise in core inflation due to the exchange rate depreciation in the third quarter brought the
end-2015 inflation forecast up by 1.2 points compared to the July Inflation Report forecast. Yet, the
improvement in import prices in the inter-reporting period pulled down the year-end inflation forecast
by 0.2 points. Accordingly, the end-2015 inflation forecast, which was set as 6.9 percent in the July
Inflation Report, was revised upwards by 1 point (Chart 1.3.1).
The end-2016 inflation forecast was revised upward by 1 point to 6.5 percent from 5.5 percent in
the July Inflation Report. The upward revision in the end-2015 inflation forecast and the delayed effects
of exchange rate movements are expected to drive the end-2016 inflation forecast up by 0.6 and 0.8
points, respectively. However, the decline in the assumption for average import prices for 2016 and the
small downward revision to the output gap forecast for 2016 brought the end-2016 inflation forecast
down by 0.3 and 0.1 points, respectively, from the previous reporting period.
1.4. Risks and the Monetary Policy
Loans continue to grow at reasonable levels in annualized terms in response to the tight
monetary policy stance and macroprudential measures. The CBRT highlighted that loan growth has
displayed a notable deceleration due to tighter financial conditions caused by recently elevated
domestic and external uncertainties. Specifically, commercial loans denominated in foreign currency
and consumer loans have lost significant momentum. With respect to the composition of loans,
commercial loans continue to grow faster than consumer loans. This composition not only limits
medium-term inflationary pressures, but also helps to improve the current account balance. In addition
to the moderate economic activity, rising loan rates and the tightening of other financial conditions
also signal that loan growth may remain lower than past years’ averages in the upcoming period.
Final domestic demand was the main driver of growth in the first half of 2015, while external
demand remained weak. Indicators for the third-quarter point to a moderate economic activity,
whereas the composition of growth hints at a slight slowdown in domestic demand and a recovery in
Inflation Report 2015-IV
9
Central Bank of the Republic of Turkey
exports. The weak consumer confidence and tighter financial conditions curb private consumption
and investment demand. The slowing domestic demand and the changes in real exchange rates drive
imports lower. On the exports front, despite the negative impact of geopolitical developments, the
rising demand from EU members affects Turkey’s exports positively. Against this background, the CBRT
expects the growth composition to shift gradually in favor of net exports in the upcoming period. This
shift is expected to have a positive impact on the current account balance. Moreover, the favorable
developments in the terms of trade and the sluggish course of consumer loans contribute to the
improvement in the current account balance. Accordingly, the improvement in the current account
balance, which became evident with the August figures, is expected to continue.
Energy price developments continue to affect inflation favorably. The negative impact of
cumulative exchange rate developments since early 2015 on the inflation outlook is partly offset by
lower oil prices. Food prices, on the other hand, remain volatile mainly due to unprocessed food prices,
which pose both upside and downside risks to the year-end inflation forecast. The cumulative Turkish lira
depreciation caused the annual core goods inflation to rise and the core inflation to deteriorate
slightly. However, the tight monetary policy stance and the moderate domestic demand cause the
pass-through from the exchange rate to prices to remain limited compared to similar periods in
previous years. Accordingly, considering the impact of the uncertainty in domestic and global markets
on inflation expectations and taking into account the volatility in energy and food prices, the CBRT
decided to maintain the tight liquidity stance as long as deemed necessary. Future monetary policy
decisions will be conditional on the inflation outlook. Taking inflation expectations, pricing behavior and
the course of other factors affecting inflation into consideration, the tight monetary policy stance will
be maintained.
Uncertainties surrounding global monetary policies and concerns over global growth cause
financial markets to remain volatile. Thus, portfolio flows to emerging economies and risk indicators
follow a highly volatile pattern. The measures announced in the CBRT’s road map, which will be
followed during the normalization of global monetary policies, strengthen the resilience of the
economy against global shocks. The current monetary policy stance remains tight against the inflation
outlook, stabilizing for the FX liquidity, and supportive of financial stability.
Should the decline in loan growth rates become permanent and exchange rates continue to
face upward pressure over the upcoming period, the CBRT will preserve the tight monetary policy
stance, and also take measures to support the Turkish lira and loan growth by easing the conditions for
the use of foreign currency denominated collateral.
Developments in the fiscal policy and tax adjustments are monitored closely with regard to their
effects on the inflation outlook. The baseline monetary policy stance is formulated under the
assumption that fiscal discipline will be maintained and there will be no unanticipated hikes in
administered prices. A revision of the monetary policy stance may be considered, should the fiscal
policy deviate significantly from this framework, and consequently have an adverse effect on the
medium-term inflation outlook.
Sustained fiscal discipline has become a fundamental element in reducing the sensitivity of the
Turkish economy against external shocks in recent years. In the current environment of highly uncertain
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Central Bank of the Republic of Turkey
global markets, the value added from maintaining and further advancing these achievements is
significant. Any measure that would ensure the sustainability of the fiscal discipline and reduce the
savings deficit will support macroeconomic stability and contribute positively to social welfare by
keeping interest rates of long-term government securities at low levels.
Inflation Report 2015-IV
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Central Bank of the Republic of Turkey
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Inflation Report 2015-IV